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The outcomes of the “fight” between Taobao and SAIC

After one-week lasted ‘fight’ between State Administration for Industry and Commerce (SAIC) and Taobao (the largest e-commerce platform in China), the event finally walked into the “shake hands” stage. However, this heating debated event indeed led to some significant consequence both for SAIC and Alibaba.

Taobao “destabilize” event, from 23 January when SAIC released a report declaring ‘the result of oriented – monitoring of online trading commodities of the second half of 2014’, the result showed “Taobao`s rate of genuine was less than 40 percent, triggered Taobao to be unsatisfied. From January 27 to 29, the two sides against each other for several rounds.

The progress of the whole event

On 23 January, SAIC reported that Taobao`s genuine rate was lower than 40%.On 27 January, one of the staff on Taobao had an open letter to the official micro-blog, saying that the process of commodity monitoring doesn’t meet the rules and couldn’t prove genuine rate of Taobao was below 40 percent. The arguments are: small volume of sample products, definition of fake products, no announcement of repeat checking right for those shop owners, etc. Hers is an overview of the E-commerce platforms, the sample volume, and genuine rate involved in this commodity-monitoring event:

E-commerce platform

Taobao

Tmall

JD.com

Yhd.com

Sample size (units)

51

20

7

10

Genuine rate

37.25%

90%

85.7%

80%

On 28 January, a ‘White Paper’ issued on SAIC official website to criticize five outstanding issues exist online trading platform, including the control of new shop enter is lax, inadequate review of product information, disordered sales behavior management, flawed credit evaluation , internal control of staff is lax. On the same day, Taobao released another news claiming they will complain about the director of SAIC Liu Hongliang.

On 29 January, SAIC removed the ‘white paper’ on its official website.

On 30th January 2015, the event suddenly “took a dramatic turn” that the director of SAIC, Zhang Mao met with Ma Yun, the Chairman of Taobao, and Ma said Alibaba would cooperate with the government crackdown, strengthen routine inspections and sampling line in the future.

Meanwhile, SAIC spokesman stressed that the previous file was released by network monitoring department — Alibaba administrative guidance “White Paper”, in essence, was the symposium on administrative guidance, which does not have the force of law.

What was happening abroad at the same time?

Taobao “destabilize” event, not only over discussed in the domestically, also sparked widespread concern overseas.

According to people from Alibaba, the next day of “White Paper” released, the international media turned attention to this phenomenon and regarded it as the opinion of Chinese government towards Taobao and questioned Alibaba had concealed his government investigation encounter information before its IPO in USA. They think it could be regarded as inadequate disclosure of information. Many institutional investors were beginning to doubt whether Chinese enterprises are operating in the “non-market competition environment.”

This directly leaded to the slump of Chinese Concept Stocks and Alibaba stocks. During the next two days until 29 January, Chinese Concept Stock had evaporated near 60 billion including 33 billion of Alibaba.

Moreover, there was a clue that the ‘white paper’ was done before its IPO in USA in September 2014, but SACI didn’t publish it until the online trading commodity monitoring. Thus, investors had the reasons to believe that Alibaba tried to collaborate Chinese government and conceal some information to protect its IPO. For this reason, on January 29, the US equity firm Pomerantz LLP announced, commissioned by investors, it was going to work on the investigation about Alibaba allegedly inadequate disclosure of information, and the main point was whether Alibaba and some executives or directors have violated Terms of the US Securities and Exchange Act. After that, another 4 US law firms stated that they would do the same as well.

However, as SAIC spokesman clarified, “the white paper does not have the force of law,” which also meant to inform the outside world that Alibaba did not withhold information. Therefore, the United States and several law sues brought will lose the supportive evidence.

What should we think about this?

From my perspective, I do think this event happened in an incorrect or unreasonable way. For the commodity monitor process, SAIC had the spot check with 91 units, which including 51 units coming from Taobao. However, the total products volume of Taobao is beyond 1 billion. It cannot convince people to believe the conclusion given just based on these 51 units products. What surprised me was SAIC indeed released the result and led to the huge negative influence on Alibaba in the United States. And finally they revoke the release in a ‘nice’ way, which still leave a glum impact for not only Alibaba, but also all the Chinese enterprises. I am not saying the government should help companies to hide some bad information, but it has to make deliberate decision and ensure reliability and facticity of the announcement they make, and avoid those unnecessary damage for Chinese companies. Especially for those going international symbol companies, government should courage and supports them in a right way. As every single word from the government would have enormous consequence on people`s perception, especially for foreigners who don’t really know the reality and situation in China.

Another issue behind this event is that the supervision regulations and system of SAIC should be improved in order to create a better business climate for Chinese companies.

As a customer of Taobao for many years, I would like to say something objectively. I admit there are both genuine and fake products on the platform, while, the thing is, in most of the situations customers know it due to the obvious price difference, but they are still willing to buy it because the products meet their needs and expectations with reasonable price for them. Once again, I am not saying they should sell fake products, but it is hard to clean it thoroughly, because there is a market existing there. On the other hand, Alibaba actually adopted many strong measures against fake and shoddy products, but sure they need to do more than that.

Also, at the end of the drama, SAIC affirmed the important role of e-commerce to stimulate economic growth, promote employment and other aspects of entrepreneurship, as well as consumer rights in Alibaba, clean business environment and to strengthen its efforts to make the enterprise self-discipline. Of course, he also pointed out that there are some problems on current online trading platform, and Alibaba need to be innovative on network regulation, establish communication and interaction mechanisms to better regulate and promote the healthy development of the network economy.

And Ma said China’s online shopping market is an emerging market, and need to further improvement of standards. He stated ‘We have been committed to the fight against fakes, and try to figure out the problem.’ Next step, Taobao will cooperate with government departments, increase investment in capital, technology and other inputs, to further expand and strengthen the existing team of professional counterfeiting, strengthening routine inspections and sampling lines, and collaborate with law enforcement agencies to solve real-world problems.

In addition, the two parties will jointly explore the appropriate network market management, regulatory authorities to further strengthen the network of market supervision, fair and impartial performance of their duties according to the law, relying on big data and other information technology to enhance the level of supervision.

So far, the drama had closed the curtain eventually. I hope Taobao and the government will cooperate with each other and make efforts on solving the problem of fake products. Let`s look forward the bright future of Taobao and Alibaba!